ABB India Ltd

NSE:ABB

Q2-2025 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to ABB India Limited's Q2 April to June Quarter CY 2025 Earnings Conference Call. [Operator Instructions]

Please note that this conference is being recorded and any unauthorized recording of this call is strictly prohibited. The recording will be made available on the company's and SEBI's website subsequently.

I now hand the conference over to Mr. T.K. Sridhar, Chief Financial Officer of ABB India Limited. Thank you, and over to you, sir.

[T. Sridhar, executive]

Thank you, Rayo. Very good morning. Warm welcome to all of you, ladies and gentlemen, for the Q2 analyst call what we have today. So it is proud to say that we are in the NSE boardroom today taking over this call. Along with us -- along with me, I have Mr. Sanjeev Sharma, the Country Managing Director of ABB India Limited. And I have all the businesses other than Kirana, who is traveling at this point of time. So we have Balaji, Head of -- representing Process Automation. We have Sanjeev Arora, Head of Motion. And we have Ganesh Kothawade representing EL; and also Subrata Karmakar from Robotics, right? And also we have the other management people in the room.

So it's a great privilege for us to address this particular call from this iconic place where we have been associated for the last 30 years since we are there.

So without wasting the time, over to you, Sanjeev, to take us through the Q2 results and also get to hear from the leaders.

[Sanjeev Sharma, executive]

Thank you, Sridhar. Good morning to all of you. Welcome to this call for the -- our second quarter of 2025. We are happy to join, addressing you from the National Stock Exchange. We are using their boardroom. They have invited us here to celebrate 30 years of ABB India's listing on National Stock Exchange. And the whole management team and other team members are present here.

I will kind of give you, given the occasion, a bit of a snapshot of how ABB has delivered shareholders value in last 30 years, big kind of journey that we have performed together with NSE.

As you know, we are manufacturing in this country for 75 years, but this snapshot that you see is for the last 30 years. Total shareholder return is 8,500% during this period, and consistent dividend has been paid out every year since the listing of ABB on NSE. Our share price has risen 6,745% and market capitalization increased 68x. A lot of 100 shares is what -- more than INR 6 lakhs and net worth is 33x.

Now key financial performance indicators between '24 versus '94 is our revenues from our core operations is in 20x in crores. Our PAT is 37x, EPS is 27x, DPS is 6,209% and dividend payout is 2,850 bps.

So that's the kind of shareholder value that we have created from our India operations for our shareholders. And also that's the belief that we participate in this market. And you can see in last 30 years how many ups and downs have come in the markets and how many ups and downs have come into the global economy, local economy. And our belief system is that these are all temporary, passing matters.

We stay consistent in focusing on our customers; bringing more products for the country, which are good for nation building; continue to localize it; continue to expand into the geographical reach; and also continue to connect with new market segments, which show up as the country is growing in its sophistication across the length and breadth of it. And that continues to reward us and also continues to reward our shareholders.

Now next slide. If I look at many last quarters, I think practically after we came out of COVID, we saw continuous growth in orders, revenues and profitability. And I think all of you who have been joining this call have been part of that journey, and we are very pleased with how that journey and the growth has come for our portfolio. And we enjoyed it, and we have created a very strong balance sheet at this point of time and also good momentum for our portfolio within the company. So much so that for the first time, our backlog is about INR 10,000 crores.

And like everything, I think when the market has been strong for a very long period of time, a point comes when the market takes a breather and I believe we are passing through that point. And maybe last quarter and at current point, we see that the market has been readjusting its growth trajectory. And we believe it's going to be momentary and then it will come back to its own forward trajectory again.

So that gets kind of reflected in our orders, and which is also kind of correlated with the large orders we had last year, which are missing in the last quarter, but our backlog continues to expand.

Revenues continue to expand. And we have certain exceptional items in the PBT, which Sridhar would be able to explain as we kind of discuss this further.

Next slide, please. So you can see that the financial performance, the base orders, we continue to see base effect is strong. It's only the large orders are a bit cyclic. So we continue to enjoy the growth on the base orders.

Revenues expansion is 12%, which means the execution capability of the business is at a solid level.

Our cash balances stand at INR 5,500 crores.

And Board of Directors have declared an interim dividend of INR 9.77 per equity share of face value of INR 2. So this is -- again, is in consistent with the last 2 years that we have started declaring the interim dividends for the shareholders.

Now the portfolio, we have introduced some new products, which are prime for this market and we will continue to gain more -- achieve market share of the existing market -- existing market as well as we are introducing new products and opening up new market segments.

On the sustainability front, if you take 2019 as our base, we have reduced our GHG emission by 87.5%. We are rated strong in ESG performance by CRISIL and comprehensive sustainability training is delivered to over 50 suppliers.

Now we continue to see stronger momentum in core segments in quarter 2, complemented by a few emerging segments, like, for example, we particularly like transport, building and infrastructure, discrete and process industries. But at the same time, there are certain classic segments within these segments, which are kind of subdued and sluggish. But we have a mixed market picture, and as we said, our order backlog stands at highest level above INR 10,000 crores.

Some of the key highlights, and I think you can go through them. Like this shows the diversity of the applications in the markets we supply, be it SCADA or remote terminal unit for pipeline projects. We have the power distribution for energy major. We have machine and factory automation for large paints and polymer company, supplying solutions for tires, robotic solution for a 2-wheeler manufacturer and automation for a smelter project and power electronics building block or control system for Indian Railways.

So you can see how diverse our product portfolio gets applied in the industry as well as in the core projects across the country.

Same way, we deepen -- continue to deepen our connect with our customers. So not only in Tier 1, we go to Tier 2, Tier 3 and new emerging markets within the country. And we continue to enjoy engagement and growth in this aspirational country that we have at this point of time.

Well, our focus remains on the market segments, which are relevant for us, which are considered a high growth, which is about 15%, moderate is between 8% to 15% and low is less than 8% growth at the moment in the market. So that gives you a snapshot of how we are seeing the market at this point of time.

Theme of the quarter is pharma and health care. And just to give you a little bit of an in-depth view how we see it, India is ranked 3rd for pharmaceutical production by volume. And the pharma industry shall reach $130 billion by 2030, a CAGR of 12%. And we see that the pharmaceutical market continues to grow in future, and we continue to engage with our solutions.

I think this is one sector, which always stays part of our solution engineering, whether it is the automation systems, our drives and clean room solutions or it is the powering such large plants, all those solutions go. And also in robotics side, there are pharma majors who apply into certain applications as well.

Now when it comes to sustainability in practice, our goals for this year, we are on track. As I said, 87.5% GHG emission based on 2019. Our target is that 4 of our campuses will become zero waste to landfill, already 3 are achieved. That means no waste goes to the landfill from our plants. Out of 4, 3, we have already achieved the water positive unit. That means we put more water in the ground than we take it out. And water recyclability target is 50%. We have already achieved 41%.

So we continue to have CSR focus and not only at the central level, but all the locations where we are present. And our leadership team really is very conscious in terms of engaging the communities, which we can affect in a meaningful way. And this is something, which gives us a lot of pleasure and a lot of fulfillment apart from delivering good results for the market as well as our stakeholders.

Now as far as the outlook is concerned, we see megatrends are in electrification, energy transition, digitalization and automation and sustainability because these are elements which are really kind of appreciated by our customer, which is part of our portfolio. And on the macro factors, of course, continued government expenditure, private investments, private consumption. And as inflation is easing, I think these are good positive tailwinds for us going forward and that we hope to kind of exploit as we go forward.

Now before I hand it over to T.K. Sridhar to give you financial highlights, let me take the benefit of all our business presidents present in the room to give you a very quick snapshot of what's happening in Process Automation, Motion, Robotics and Electrification.

So let me invite Balaji for a very quick comment, how does he see process automation so that you can take a benefit of more granular view of each of the business areas we have.

Balaji?

[G. Balaji, executive]

Thank you, Sanjeev. As all of us know, in Process Automation, we cater to -- solutions to various segments, specifically oil and gas, power, water, specialty chemicals, pharmaceuticals and the heavy industries of metals, minerals, mining, et cetera.

From a Process Automation context, I think we are continuing the journey in what ABB does, which is to make the industries leaner and cleaner. Our solutions are bringing both scale and sustainability to various industries that we cater to.

In terms of our performance of H1, I would say what's standing out as you might see in the subsequent slides is our profitability. We are holding course. This is a reflection of a good order backlog, strong execution. Notwithstanding the ForEx variations, I think these 2 positives have resulted in a good results.

We do see demand coming in from core industries of various energy, mining and paper industries. But overall, we have seen the markets have been sluggish in the H1 of 2025. We have seen some late positive movements that we hope will continue for the balance of the year as well.

Overall, we remain positive. We are watchful about the market. We stay prudent and cautious.

Thanks, Sanjeev.

[Sanjeev Sharma, executive]

Thank you, Balaji. I invite Sanjeev Arora, who is the President for Motion division -- Motion business area. Sanjeev?

[Sanjeev Arora, executive]

Thank you, Sanjeev, and good morning to all. So from Motion perspective, as you are aware that we are into motors, both low voltage, medium voltage; drives, same, low voltage, medium voltage; and traction business.

And this, I would say, I would start with a positive note that although we talk about the sluggishness and other aspects a bit later, but then the baseload orders for us are intact. And if I see the progress from last quarter to this quarter, the baseload orders have shown some improvement.

However, having said this, what we are missing is the large orders. And on top of it, of course, we are facing some headwinds when it comes to the price realization. And -- but then our theme still remains that how we can give the best of the technologies globally available to our local customers, that is our motto. And we are promoting energy efficiency with all the, I would say, product ranges what we have across our Motion. And the customers is also appreciating and really going in that direction as well.

So overall, I would say -- and the good part is the Motion portfolio is so large that we are serving be it the light industries, the heavy industries, infrastructure, railways. So we have a large bandwidth of operating in many segments, and we can really counter the cyclicity of that segment as we go forward.

But having said this, we are quite hopeful that in maybe H2, probably once we see some momentum in the large projects, that things would be back on track.

[Sanjeev Sharma, executive]

Thank you, Sanjeev. So I invite Subrata for the -- give a bit of an overview on the Robotics side.

[Subrata Karmakar, executive]

Thank you, Sanjeev, and good morning. As you know that, in India, manufacturing is getting smarter and smarter, correct? And in that way, robotics use of manufacturing industries in India is rapidly growing.

Industry segment, if I talk about automotive and other than automotive, electronics, warehousing technologies, everybody is today adaptation of robots is pretty high. Small customer, medium and large customers are also proportionately we see the demand from all segments.

Software-wise, digital twin, one of the highest level of software today and AI and digitalization on top of it actually getting robotics technology smarter and demand for the robotics in the industries are growing. We are very hopeful in India and the growth for robotics automation in the future.

[Sanjeev Sharma, executive]

Thank you, Subrata. And last but not the least, I think our largest division head for the ESDS distribution solution, but speak on behalf of the Electrification, Ganesh?

[Ganesh Kothawade, executive]

Yes. Thank you, Sanjeev. So when it comes to the Electrification, basically we are supplying the technologies, which is the switching and protection of the power distribution network. So typically, we supply the medium-voltage and low-voltage components and the switchgear; and majorly into the power generation and distribution; building segments; rail and road infrastructure; data centers; renewables; heavy industries like cement, steel, oil and gas.

So if we see post pandemic, the momentum was really good, which is a little bit softening when it comes to the larger inquiries, typically, which is coming from the heavy industries and the data center. But these inquiries are still strong. As you can see from the results, our base holders actually has shown a growth. And we also see a very good pipeline when it comes to the data center, the renewables and building and infrastructure.

[Sanjeev Arora, executive]

Thank you, Ganesh, and over to you Sridhar to give financial highlights.

[T. Sridhar, executive]

Thank you, Sanjeev. I think with the business leaders participating, then the time taken to explain the results will be shorter. So let me try my best at this point of time, that's okay.

So base orders for the quarter, we grew at 5 percentage. Last year, the same quarter, we had some orders from data center and mobility sector -- segments, in Motion, which is not there at this point of time. So I think this definitely shows that our focus on Tier 2 and Tier 3 has been pretty consistent and they have been done paving the results. So just to sort of give a good insight about we did improve our Tier 3 and Tier 4 market shares during the first 6 months, and that is also reflected in the results.

Order backlog, INR 10,664 crores, all solid order backlog. But clearly, the mandate, schedule of deliveries over the next 18 to 24 months, both large and the small orders, which will happen. And every business segment will have its own cycle to do it. So while Process Automation will have a long gestation time and part of Motion business also will have a longer gestation time, the balance all will be executed in the next 6 to 9 months to come.

So revenues grew, I mean, all-time high for the second quarter in the last 5 years, INR 3,175 crores.

EBITDA is at 13 percentage lesser than compared to the previous quarter. So we will definitely come back to the story of what impacted the profitability in this particular quarter.

So cash balance at INR 5,054 crores (sic) [ INR 5,154 crores ]. This is after also declaring -- distributing the dividend of INR 700 crores, which we did last -- in the month of May after the AGM. So we still also have -- the Board has approved interim dividend, which will also happen in the next few weeks to come.

So going to the next slide. Yes. So now coming to the profitability story. If you look at it, we have a profitability of 21 percentage, which we started for the same quarter last year, 21 percentage.

So what happened in this particular quarter? We had a few things, which was basically very specific for this particular quarter. The first and foremost is because there were QCO guidelines, which we had to comply and we had the customer orders on other side, which we have to deliver. So therefore, we had a hard choice to make in terms of importing material to supply to the customers to meet the delivery requirement as well.

And that definitely impacted both Motion as well as Electrification business segment, Motion to a small extent, but definitely to a quite large extent to the Electrification segment. That's number one. And because of which the import content was higher.

And the second thing was also the mix of the revenues had definitely larger impact from the trading revenues. So this was basically depending on the project schedules and the deliveries, what we had to be made to the customers.

And the other couple of things was we did take one-off costs in the case of Electrification segment. And as you know, ABB follows a conservative accounting and then risk appraisal process. And therefore, wherever we saw a risk and to the extent what is evaluated is right is what we took in. And then we also declared it to the market in the SEBI results that we have taken a one-off cost of INR 39.5 crores.

Apart from that, I think the one which was basically beyond our control was the exchange rate, right? So exchange rate, we follow a fair value hedging in which the results of this particular hedging impacts go directly to the P&L. So that's something -- was unexpected. Especially when it comes to euro and CHF, the currencies in the last quarter appreciated more than 10 percentage. So all the revaluation of the forwards, which we had taken and the cost which we had -- we had very important. So definitely had an impact on the material cost per se combined, which we had a 4.6 percentage-wise.

And other expenses, what you see, it's all volume related. So we did not have any one-offs over here. And the personnel other expenses pretty steady and stable.

So I think long story short, I think this was a very specific quarter where we had these particular impacts. And this is something what everyone is working around to understand how we should mitigate this going forward.

So Electrification is working on the one-off claims as to what -- how we could mitigate and so on, on the imported content; and the mix as to how we could make it better so that we could deliver it and -- deliver better results going forward.

So having said that, I think as what Ganesh was alluding to, what Sanjeev Arora was alluding to, I think the market is definitely a bit of a mixed bag at this point of time with a bit softening in some sectors while some other sectors are growing. So it's basically a cautiously optimistic approach, which what the businesses will take.

The next slide. Yes. I think this has been the pattern of what has been there for the last 8 quarters where we have seen consistently each and every quarter we had some large orders, which give a favorable impetus to the order. And now in this quarter, we did not have a large order, but the base orders definitely grew, right, by 5 percentage. That itself is strong and is a bit of a motivation factor for all of us.

So order backlog is INR 10,064 crores. They are a mix of large orders and also the product orders, which will get delivered in this, right? So I think almost 50% -- 50 percentage of it is coming from large orders, and they will get delivered over the next 18 to 24 months, depending on the project schedules what we have.

The next slide. So this is a slide, which I think it's more only from the investor standpoint when people -- when ABB Group looks at India. So they look at a 9% degrowth, while we look at on a stand-alone basis, a 12% degrowth. So this is how the demand order and the supply side of it is interpreted.

Yes, the next slide. So here, I think here is basically a bit of aggregation, which we already explained to. I think this is pretty much very evident that in this particular quarter, we did have INR 56.5 crores of -- INR 56 crores of impact on account of ForEx and INR 39.5 crores is freight cost, which we had taken out the one-off in Electrification segment. So other expenses stayed steady. So there is no much impact.

Our ETR at 25.7 percentage, which is also steady.

Next slide. Yes. So we dwell a bit more into the division-wise, segment-wise numbers. So Electrification, INR 1,400 crores roughly in orders. I mean -- and this is basically -- and if I look at it from the previous quarter, this is then the previous year, the same quarter, we had a large order there to the extent of INR 148 crores. So that is something -- because whereas we see here INR 1,432 crores. And if you take only the base orders of Electrification quarter-on-quarter, we have delivered 9 percentage growth on that.

So it's -- I would say the focus of Electrification on the building segment, the data centers is strong, and therefore, we have got this growth momentum still continuing.

Revenues, INR 1,379 crores. It could have been higher, but I think we had the issues to deal with in terms of QSO -- QCO and import content. So I mean that's important. So that's something which probably had to be scheduled according to the clearances what we get.

Backlog at INR 3,500 crores. I think most of it will get exhausted in the next 12 to 15 months. That's the trajectory what we see.

And profitability, as what we mentioned, it had a higher import content, a revenue mix of higher trading revenues, therefore, and we had the ForEx volatility and the one-offs impacting them.

The next slide, Motion. Motion, I think Motion also had INR 396 crores of large orders in the INR 1,329 crores of the last year. And therefore, on a stand-alone basis, I think for the base orders, they still delivered a solid growth as what I would see. And therefore, I mean, orders definitely grew from -- for control system railways and good system drive products sale, which happened.

And also in terms of the base order, yes, there is a bit of a competition impact when it comes to some of the business divisions in Motion. But I think the overall basket of large orders -- base orders is still growing.

And backlog at INR 4,000 crores, I think here is where because we have a good mix of system orders or the project orders and also the base -- and the base orders to do. So I think it will get spread between 18 to 24 months for the total execution.

And profitability was impacted. Again, as what we had in the case of Electrification, we also had a ForEx impact. They also -- the part of the businesses had to deal with the QCO challenges. And also, there was an impact of price realization for some of the business divisions in -- especially motors in Motion. So I think that's more of a competitive scenario, which is emerging out over there.

So if we can go to the next slide. Process Automation, I think this is a division, which actually is a reflection of the large orders getting decided in the market. So if you look at it, it's pretty much stable between what we had last year to this year, a slight decline, and that's more of the fact that a couple of orders got -- decisions got -- has been postponed for the last 2 quarters. I mean, that's reflective of the investment scenario, which is more cautious at this point of time.

And revenue slightly subdued to the extent of INR 500 crores. We expect that this should actually pick up in the next 2 quarters to come as the delivery schedules are getting framed up for the supplies.

Order backlog declined by 12 percentage. That's more reflective from the subdued order intake, what has happened in the last 2 quarters. Revenue execution maintained the same trend.

But good part is profitability despite they had a bit of an ForEx impact, they were able to recover that or offset it in a way through a good revenue mix. They had a high service content within the orders. And also they had a good amount of projects, which they could close out and actualize the margin in the quarter. So I think these were some of the positives, which could help offset the impact on the ForEx.

Next slide. Robotics last quarter had a large order from the Electronics segment, so which is actually not present in this particular quarter. So they are at INR 120 crores roughly in this quarter. And the future, as what you heard from Subrata, is pretty much -- is promising, and we stay committed on this particular division as such.

And revenues grew to an all-time high of INR 236 crores, but it was more evident from the fact that it had a large content of trading revenues. So that's something, which -- because Robotics has a longer runway to do for in terms of localization. So we still depend on quite a few imported components, and therefore, the trading revenues are higher, and they also had a ForEx loss. But I think the basic fundamentals of the business segment remains strong.

Yes, next slide. Yes, this is something to prove as to how we are in the different offerings to the customers. The business areas, Motion and Electrification, still hold 75 to 76 percentage of the business is coming from, and that's also represented in the product portfolio of offerings, which we are at 75 percentage, 12 percentage on the services and 13 percentage on the projects and so on.

Channels to market, partners and OEMs -- partners and end users are important for us. So they constitute 80 percentage while OEMs and EPCs are less. And this is also a reflection of the fact that the large -- in terms of the large orders in terms of decision-making are slightly getting delayed.

By geography, we are predominantly still a domestically focused organization. So 88 percentage of it comes from local market and 12 percentage from the exports. Earlier, you would have seen 90 percentage coming from domestic market and 10 percentage is in export. There's a bit of a change at this point of time because there's also a reflection of the domestic market softening at this point of time.

So overall, I think as Sanjeev was mentioning, we had quite a bit of a strong run in the several quarters after COVID. And this is a quarter where we had specific issues to deal with, and we are more than happy to deal with it in a very transparent way and disclose it to the stock exchange, I mean, the results -- our results. So that's what we have done.

So thank you very much for a patient listening. So we can open up for the question and answers.

[Operator]

[Operator Instructions]

The first question is from Renu Baid from IIFL Capital.

[Renu Baid, analyst]

My first question, Sanjeev is, now still almost 6 to 9 months that you've called out that business is a bit soft with respect to large orders and CY '25 like is a year of moderation.

So how are you seeing second half of the current year panning out? Is the momentum being sustained, moving further or improving? And in your view, what will drive back the positive investment sentiment from the private sector, especially large projects?

[Sanjeev Sharma, executive]

Our take is that, especially as Balaji explained, that we do have a pipeline of orders, which are yet to be converted. I think we do see something in Process Automation, but it's not a big mountain of kind of forward log, but it's a reasonable log for us to convert.

Likewise, in the Motion, Electrification, I think on a regular scale, I think it's a good market setup going forward, but not super strong as we have experienced in the last quarter.

So I would say on a normalized basis, it's a good market, but not as strong as we have witnessed in past couple of years or 3 years.

Now going forward -- what we can see going forward is that there is a bit of an uncertainty in terms of what's going around the world. So especially on the private CapEx, during these times people become more cautious in terms of how much capital they want to commit till the clarity comes in terms of domestic market as well as for the export participation for our customers.

We do believe that the government CapEx has started picking up, but not -- it is yet to gather pace, and I think that will be one defining factor as we go forward. And also, we will see that the new market segment and new trends which are emerging in the marketplace, energy transition and cities expanding and creating more robust power supply, data centers and recent events wherein something happened in terms of somebody who was not able to kind of participate in the cloud services, I think that may lead to more digitalization services and the localization of the cloud and the data centers locally. Those trends may start emerging as well, and that bodes positively for our business.

So I'd say second half, yes, it will take time for it to come back. But I think if I put them midterm, which is, say, next year onwards, hoping that everything falls in place, I think we should start getting the momentum back in the marketplace. That's the expectation we have.

[Renu Baid, analyst]

Sure. Secondly, on the profitability margin front, a, demand moderation plus inflationary impact has been probably visible in some of the segments like Motion and EM. And Sridhar, in your view, the QCO impact, how elongated could that be in terms of readjusting for the domestic standards and getting the qualification done. And probably the lingering impact of that on our margin profile.

[T. Sridhar, executive]

Okay. Good question. Thank you. I think this time being 6 months what we are performing, we also definitely would have given you the -- we'll also look at the balance sheet, which has been [ attributed ], balance sheet has been published. So we do have inventories, which are high at this point of time, which was roughly INR 1,800 crores to INR 2,300, INR 2,500 crores. So we have imported quite a bit of material to meet these compliance requirements, and they got probably relaxed as late as last month.

And therefore, we expect that we will have to use these important components to supply in order to gain time and also liquidate these inventories. And so this gives you an impact as what we see we have in some of the products 1 year run rate up to September '26 is what we need to be ready for that. And in some of the products will come to know in the years -- in the months to come.

So as we have able to -- as we're preparing for this, we will have to be making sure that we are -- we stay delivered or committed to the deliveries, what we have given as for the customers, and therefore, we are okay to invest by the importing material and using it in the consumption.

So I think in the next 6 months, we will have a mix, which could be -- which we have to do judiciously in order to ensure that we have a balanced consumption between imported and localized and also the revenue mix in terms of how we do more of manufacturing revenues and service revenues to shore up the margins.

[Renu Baid, analyst]

Sure. And the pricing impact in terms of inflation as well as weak demand, any price hikes that we are taking or the market is self-adjusting?

[T. Sridhar, executive]

So I have the Motion and the EL leaders over here. So the question is, are you going to pass it on to the market with the price adjustments?

[Ganesh Kothawade, executive]

Yes, of course. Whatever inflation is there, the market definitely should be able to absorb it.

[T. Sridhar, executive]

So I think, Renu, what could be a bit of a challenge is that the volatility of the ForEx is something what the market may be -- not be so easily accepting it, okay? So the reason is because we are the short-cycle orders. The long-cycle project orders definitely have a possibility of correcting it because they have -- they go by indices or by adjustment, so that is protected.

But whereas if you look at our products, which we are 70 percentage and they are more short-cycle, I think this challenge of balancing the volatility risk vis-a-vis the margins what we have committed on is going to be definitely a work to be done.

[Operator]

The next question is from Mohit from ICICI Securities.

[Mohit Kumar, analyst]

My question is are you any way impacted by the tariffs announced by the U.S. on India either on the revenue side or the cost side?

[Sanjeev Sharma, executive]

Well, I think as you can see that the 90% of our business is domestic, right? So that is the way we get it. And most of our products, we have quite high localized content. And that's the strategy of ABB globally, to be local for local. So that means we are increasingly post COVID deepening our supply chains locally and that's something, which is helping us.

So as such, on the kind of tariffs side, we are not exporting a very high volume into U.S. at the moment. There are a couple of products which we do. So we will see how that pans out, but that is not a very high mix of our overall orders and revenues at this point in time.

[Mohit Kumar, analyst]

Understood. My second question is on the -- can you please explain the nature of hit you have taken on the Electrification side and why? And are there a risk of further such risks? And how are you mitigating it?

[Sanjeev Sharma, executive]

So it's a kind of a typical project topic wherein we have been executing a project wherein certain corrections had to be done into the installed equipment. So that's where the hit comes. And as far as we are concerned, we are an engineering company. We deliver engineered solutions and all these engineered solutions need to comply with the local standards.

So at times, if there is a deviation on it, we [ never ] step back. We always correct it first and then make sure that the customer enjoys the product how it is meant to be. So that's the nature of it and we have already corrected those, what you call, anomalies that we detected, and in collaboration with the customer, we have that back online for our customers.

[Operator]

[Operator Instructions] The next question is from Bhavin Vithlani from SBI Funds Management.

[Bhavin Vithlani, analyst]

Two questions. One is what could be the impact on the exports given the tariffs that we have seen and many products that ABB is the feeder factory for the global side?

The second is on the motors business, we have seen a significant increase in the competition where MNCs like WEG and NIDEC have set up greenfield facilities and the larger existing ones like CG has doubled capacities. You also spoke about price realization being under pressure. And more color on this would be more helpful. These are my 2 questions.

[Sanjeev Sharma, executive]

So as far as tariff is concerned, I think I answered that question in my previous response. As I said, as far as 90% of the market is domestic. And out of the 10% of the exports, only a very minor part goes into the U.S. specifically. But there is some export, but that's something we don't see as a major impact. And we hope this situation like, in other countries, will resolve itself given the tactics of negotiation in play. So we don't see significant impact on us at this point of time.

And when it comes to competition, I think competition is way of life. ABB is a global company, there's competition in one form or the other exists in many markets globally for us, and we deal with it and we know how to play this out. And especially in domestic market, we have had a very strong run of our Motion businesses in the market, which is visible in our results post-COVID.

And there's always -- when there's an extraordinary performance by a company, which was us, there are always competitors who get more interested in those market segments and there is much more activity. So I think it's a fairly normalized behavior that we see part of our portfolio, unless Sanjeev, you have something to add? Sanjeev Arora.

[Sanjeev Arora, executive]

Definitely, Sanjeev, I think you have given the right perspective.

And as far as the price realization, if I pick up that point, definitely, we will have that push of increasing the price level to the market. And we have been correct that in last quarter as well.

So coming back to the competition that Sanjeev has explained very well. And we are expanding our base in India. And we are going into segment-specific energy efficiency, the best of the technologies of the -- present at this point of time in the globe with the, I would say, the local footprint.

So that we keep that forte. And the customers are also appreciating and they are actually giving that kind of credit to ABB as far as motors you are asking specifically. And we are seeing -- and that is also getting well explained in the improvement in the base load orders. So yes, the competition is welcome. But then on other parts, we are doing our stuff to stay ahead. Thank you.

[Operator]

The next question is from Amit Mahawar from UBS.

[Amit Mahawar, analyst]

Sanjeev, I have 2 questions. First is, so last year you had a very strong base of large orders also. In second half, can you recoup -- I don't see too many large propulsion orders for you. I don't see a lot of segments which otherwise would have been large orders in second half. So is it safe to say this is going to be a 5% or maybe 5%, 7% growth year for orders. I know we don't give guidance, but some color here? That's question number one.

[Sanjeev Sharma, executive]

So on the traction side, I think we still have some play out in the market, which we are hoping to secure going forward. So it's not a dried out, but it was not in last quarter. And we do see some good play there because the expansion by railways, metro, I think that is still quite a strong market segment. So I think that's something we should keep back of mind, and our portfolio is pretty strong as well as pipeline is reasonable there.

Now when it comes to the other market segment, as we said, yes, if you net out the large contracts, which are cyclic in nature from the previous year, our base orders remain pretty strong. And I think that's what comes. And also our small cycle orders, there also remains quite strong. And I think that's the nature of large contracts that you get them, they show up in your backlog and you execute over a period of time. And that's why you can see our backlog numbers are expanding.

But yes, we will take the market as it comes. And typically, we don't second guess the market. We really deal with the market as it shows up. And I would say from the conversion point of view, for the large projects or reasonably medium-sized projects, the pipeline is reasonable at this point of time. And we are hoping to convert them in the third and fourth quarter of this year for us, yes.

[Operator]

Next question is from Atul Tiwari from JPMorgan.

[Atul Tiwari, analyst]

Sir, my question is whether you are seeing increased competition from Chinese imports in any of the product segments that you are present in?

[Sanjeev Sharma, executive]

So we did have a lull for a period of time given what happened between India and China. I think though it is not out there in the open, but we do see participation from the Chinese manufacturers in the marketplace. And some of the corporates when they are deciding, they are bringing them into the mix of buying as a possibility from Chinese players.

So yes, I think your question is in the right direction. So Chinese players' participation with the products which are manufactured in China and imported directly by the corporate, that has come into the mix now.

[Atul Tiwari, analyst]

And sir, which product segment this would be?

[Sanjeev Sharma, executive]

Mostly, it is coming in the heavy industry or heavy equipment.

[Atul Tiwari, analyst]

So I mean, which of your product segments this competition is coming in, Electrification or Motion?

[Sanjeev Sharma, executive]

We have seen some of it in our Process Automation segment.

[Atul Tiwari, analyst]

And sir, obviously, I mean, all of us know about heavy industrial overcapacity in China and the prices, which are obviously totally unrealistic. So is the same situation here that the prices are way off the mark?

[Sanjeev Sharma, executive]

They are, they are. They are -- I think the buyer is taking benefit of that sentiment, but I think that's not the price level we will participate just to keep the order and the revenue books going. So we -- typically, our -- as I said, we have a long experience in this area. It always comes for a period of time and then it dies itself out.

So we participate where there's a reasonable kind of quality in terms -- in the eyes of the customer and the appreciation for the local value-added carried out by us. And wherever we see the participation, that appreciation we participate. But if the decision is purely based on price and which is way out of fundamental expectation, I think we don't participate.

We let the customer know what the value proposition we have, but sometimes customers get enamored with the price levels they get.

[Atul Tiwari, analyst]

But you are not in any competition in Electrification and Motion segment till now?

[Sanjeev Sharma, executive]

No. We haven't seen that in the Electrification and Motion at the moment and not in Robotics. A little bit, but not much.

[Operator]

[Operator Instructions] The next question is from Sameer Thakur from Ambit Capital.

[Sameer Thakur, analyst]

So on the high import content, I understand that the increase in imports volume could impact remaining quarters as well. And is it safe to assume that this is the bottom quarter? And will we get back to that 12% to 15% PAT margin in the quarter from Q3?

[T. Sridhar, executive]

So Sameer, we don't give any guidance, but I think to answer to your question, to add color to that, as I was mentioning earlier as well. So we have a topic to handle right? So QCO is not simple topic. So it has processes to go through. So -- but on other side, we have deliveries which are committed to the customers.

So we stay committed to the customers. This is a momentary impact in terms of using more of imported components to deliver to the customers. So therefore, we will continue to have a judicious mix between using the imported material, which we have definitely in stock, assuming that we don't face any headwinds in future and also increasing the manufactured content.

So I think at this point of time, to answer your question, it will be a mixed bag, right? So the earlier sort of a band, which we had given with 12 to 15 percentage is something which we need to spend -- work out to be there.

[Operator]

Next question is from Parikshit Kandpal from HDFC Securities.

[Parikshit Kandpal, analyst]

So my question is on the prospects pipeline. So I know you spoke on it earlier. But has it reduced or is it just timing delays? So just wanted to understand the discretionary and nondiscretionary part of that and whether it's there or whether it's getting delayed and when do you think the recovery will happen which quarter?

[Sanjeev Sharma, executive]

So let's give you a very quick snapshot. Balaji, do you see it is reduced or it is delayed in the Process Automation?

[G. Balaji, executive]

I would say it's just picking up. There's been a general sort of a delay in decision making. And we wait for the customers to make the decision at the appropriate time and then we proceed ahead.

[Sanjeev Sharma, executive]

Okay. And Sanjeev Arora, do you see, in Motion, it is reduced or it is delayed?

[Sanjeev Arora, executive]

So as I said earlier, so we have good prospects and I don't see it reducing. And it's a matter of just time that we get into our books.

[Sanjeev Sharma, executive]

What do you think, Ganesh, on the Electrification side?

[Ganesh Kothawade, executive]

Yes. As I said, base inquiries is still strong, so it has not reduced. Some of the large inquiries, particularly in chemicals, oils and gas segment is getting delayed some of the decision. Some reductions, which we have seen in heavy industries like cement and steel.

[Sanjeev Sharma, executive]

How do you see in Robotics, Subrata?

[Subrata Karmakar, executive]

It's a little bit of a time gap, but per level is very good.

[Sanjeev Sharma, executive]

There you have it.

[Parikshit Kandpal, analyst]

So this continues even in this quarter and looks like what the commentary has spoken by the business leaders. So maybe towards the end of the year we will see some pickup happening?

[Sanjeev Sharma, executive]

Let's hope so. So I think we will meet again.

[Parikshit Kandpal, analyst]

Just one question to Sridhar. On the margins earlier, you've been guiding about 12% to 15%. So now -- so how do we pivot now because given that H1 is over, so do you think now we'll be able to maintain the lower end of the margin?

[T. Sridhar, executive]

So I also wish it was the lower end of the margins, right? So we have the business leaders here as well. So we had a market commentary, and we had an operational topic to deal with, Parikshit, to be [ listed ].

So are we out of the QCO? Answer to that is no. We still have to deal with it in the next couple of quarters to come as well and be ready for the 2026, right? So as we navigate the next quarter, we will make a judicious mix of how we use this, but also short of the manufacturing revenues to be at this point. To give you a bit of a qualitative direction. Quantitative direction is not possible, and we don't do it.

[Operator]

The next question is from Aditya Mongia from Kotak Securities.

[Aditya Mongia, analyst]

I just wanted to clarify when we talk about base orders and large orders, are they separate topics like certain sectors only go for large orders and those are not coming in, thus we should be seeing base orders separately?

Just want to get a better sense as to whether large orders is just a summation of bigger parts of orders, which can also be given out as base orders and thus the trends should be seen in combination? Or should one just focus on base orders separately?

[Sanjeev Sharma, executive]

So if you really see our portfolio construct, I think we have explained it earlier also, they have 3 distinct areas. One is the MTO and MTS business, which is the made-to-order and made good stores, which are -- made-to-stores. And then these are the ones, which are high flying equipment. We make it as a regular production and we -- it gets channelized into the market consumption. So that's what is a classical base order.

And there, there is pretty robust and strength -- a good strength out in the marketplace and also is a function of the demand and also the competition participation and the price realization and whether we want to participate in that price. But there, I think we have a very good traction and that's a very good expanding area.

Now second part, which comes is called ETO, engineered-to-order, that we use the same product that we produce, we do value-added engineering and make more subsystems for the customers like, say, in the energy -- ESDS kind of a business wherein we give a complete power distribution solution for industry, cities, et cetera.

There again, I think, it's a small to mid-cycle order. The MTO/MTS is a small cycle order. And this ETO business, again, is quite robust and it is going into the new emerging market segment. And there, again, we will call it as base-plus orders. They are not the large orders because they can be a single unit or it can be a very large -- maybe data center order where we some multiple same units are required. So that, again, is a volume that happens on our shop floor.

Now the last, but not the least, our systems order wherein what we do is we use our core automation technologies and electrification technology and plus third-party materials to integrate a system order for a customer wherein a value-added performance-based solution is given. And typically, that's where these large orders come and they are quite cyclic in nature and they're very dependent on large CapEx happening either directly by the government, through EPCs or end user, securing them themselves.

And the other large orders that can come is in the ETO space, which is in the data center or in the MOTR, you know the traction business wherein, certainly, a particular partner has very large trains contract or a metro contract, and they will offload a lot of volume of the technology those goes into those.

So I would say, as far as the base order is concerned, it's pretty robust. Volumes are not affected. A particular market segment may get affected because of the increased competition intensity. But then we choose how much we want to participate in terms of price correction. We continue to play the premium side of the market there.

And ETO is quite robust and system business is quite cyclic. And if you compare previous years, I think we had a fair mix of the systems orders as well as large orders coming from railway and traction. And relative to that, if you see the numbers, that's where I think they are kind of showing a different picture. But the base orders remain fairly robust for us at the moment here.

[Aditya Mongia, analyst]

Just a related question. Do we have a meaningfully different hit rates in base orders and, let's say, large systems orders? That will be the final question.

[Sanjeev Sharma, executive]

Good point. So base orders are a pure function of flow in the market, like how well we channelize ourselves in the market. So more expansion of channel partners, more expansion of our integrated partners. So it's a function of that and plus reaching out to Tier 2, Tier 3 markets and also participating in more market segments where the machinery manufacturers are catering to those market segments.

So it's a function of channelization. It's less of a hit rate, but more of channelization. And I think a major part of the business comes from the channel management, and I think that way, we continue to get better and better. And other way how we get better there is by localizing and introducing more products in the basket so that the channel partners can do more meaningful value-add for their customers in the marketplace. So that's how the base order functionality works.

And when it comes to large orders, yes, that's a pure hit rate. Like, for example, I mentioned that we had a couple of opportunities we let go because of the Chinese competition wherein the price, which are put on table of customer was way out of normal trend and the customers took a bite on it, and we let it go. So yes, that's where the hit rate goes down. But in favor of not mixing our books with the toxic orders, which typically will not give much of value to our shareholders, yes.

[Operator]

Due to time constraints, we have to take that as the last question. I would now like to hand the conference over to Mr. T. K. Sridhar for closing comments.

[T. Sridhar, executive]

Thank you. Thank you, Rayo, and it was very nice to talk to all of you once again in this quarter, which was definitely a different quarter than the previous quarter since the COVID where we have always been declaring absolutely pretty strong results. And I would also say that this result what we declared, given the market situation what we are in, according to us is decent enough apart from the impacts what we had in the profitability, which were one-offs.

So having said that, I think we would like to look forward to talk to you again in the next quarter. And thank you once again for all participating and supporting us in this particular journey so and all to the management team who is here. And from here, we go for the next event, Sanjeev.

[Sanjeev Sharma, executive]

Which is the bell-ringing ceremony, and I think we'll do it on behalf of everybody on the call.

[T. Sridhar, executive]

Yes, who has been a strong support for us in this journey of 30 years. I think, from where we were to where we are today, it will not have been possible without the support of all people like you and the investors who have imposed their confidence in ABB.

Thank you very much. I'm looking forward to talk to you next time.

[Sanjeev Sharma, executive]

Thank you.

[Operator]

Thank you very much. On behalf of ABB India Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.